In a troubled real estate market, property owners may suffer both “insult and injury” in the form of increased property taxes. Some counties have not adjusted property tax values to reflect decreasing property values. Fortunately, property owners have the option of filing property tax appeals to challenge valuations and obtain more equitable valuations.

Deadline for Appeal

For properties with tax values greater than $300,000, property tax appeals must be filed with the county district court on or before April 30. See Minn. Stat. § 278.01. A tax appeal petition should be served upon:

•     The County Auditor;
•     The County Attorney; and
•     The County Assessor.

For straight-forward tax appeals, the Minnesota Tax Court provides a “form” petition that can be used, and one of the following documents must be attached:

•     Valuation Notice;
•     Notice of Proposed Tax; or
•     Property Tax Statement.

Tax court appeal forms are located at www.taxcourt.state.mn.us. Click on “Forms,” Go to “Form 7.”

For properties with tax values less than $300,000, there is a “small claims” procedure. There is also an “informal” method through the Board of Equalization. A property owner may appeal in person or by letter to the Board of Equalization. This is an informal assessment review procedure between property owners and the assessor/appraiser. If the property owner and the assessor/appraiser are unable to reach an agreement, the property owner may proceed with an appeal to the tax court by filing an appeal before April 30 (see above).

Most disputes are resolved prior to the parties going to trial. If presented with persuasive evidence, most assessors are willing to listen to arguments that the property is overvalued. In the vast majority of cases, these matters are settled with the assessor prior to a full property tax appeal.

Is It Worth It?

Making the effort to file an appeal, negotiate with the County, and reach a resolution, requires investments of both time and money. In addition to time invested by the property owner, an attorney may need to be hired, and an appraiser will need to be identified who will testify that the value of the property is lower than the amount assigned by the assessor.

Nevertheless, savings can be significant. For example, an income producing property in Richfield, Minnesota, assessed at $7.9 million pays a total tax of $262,000. If an appealing taxpayer could receive even a ten percent reduction in tax value (assessed value of $7.1 million), the potential tax savings would be approximately $29,000. While tax appeals only apply to the current year for commercial buildings, there is obviously a “ripple effect” for future values, as the property tax appeal valuation will set a “new floor” value going forward.

Additionally, with respect to specific types of properties, there are limitations in valuation increases. For agricultural, residential, timber and non-commercial seasonal, the amount of increase following the assessment challenge is limited to fifteen percent of the preceding assessment value, or thirty-three percent of the difference between the current assessment and the preceding assessment. In the second year, the property tax increase cannot exceed fifty percent of the difference between the current and preceding assessments.

Likewise, platted vacant land is subject to limitations on increases in tax value. An assessment may be limited to one-third of the difference between the property’s unplatted value and the market value based upon the highest best use of the platted property, with an addition of an additional one-third in the second and third years. See Minn. Stat. § 273.11. For plats outside of the metropolitan area, there are even greater limitations on the ability to increase unplatted properties. To the extent property tax assessors are increasing tax values up to these limitations or, to the extent the value of the properties can be demonstrated as having not increased, then the amount the assessor can or should increase the property value is correspondingly limited.

Conclusion

In a market of decreasing property values, especially for single and multi-family developed and undeveloped lots, property owners should be ready to challenge increased property tax assessments. Minnesota has procedures in place which can ease the pain of paying taxes on properties which are no longer appreciating.

If you have any questions or for assistance with filing a property tax appeal, please contact Steve Yoch at (651) 312-6040 or syoch@felhaber.com.